Exhibit 10.1


 


Cypress
Bioscience, Inc.


 


SEVERANCE
BENEFIT PLAN


 


Section 1.                                          INTRODUCTION.


 


The Cypress Bioscience, Inc. Severance Benefit Plan (the “Plan”) was
established effective May 21, 2004.  The
purpose of the Plan is to provide severance benefits to certain eligible
service providers of the Company upon selected terminations of service.  This Plan document is also the Summary Plan
Description for the Plan.


 


Section 2.                                          DEFINITIONS.


 


For purposes of the Plan, the following terms are defined as follows:


 


(a)                                  “Base Salary” means an individual’s
annual base salary and excludes all bonuses, commissions, fringe benefits,
option grants, equity awards, employee benefits and other similar items of
compensation.


 


(b)                                  “Board” means the Board of Directors of
the Company.


 


(c)                                  “Cause” means the occurrence of one or
more of the following:


 


(1)                                 An
individual’s conviction of, or plea of guilty or no contest with respect to,
(i) any crime involving fraud, dishonesty or moral turpitude or (ii) any felony
under the laws of the United States or any state thereof;


 


(2)                                 An
individual’s attempted commission of, or participation in, a fraud or act of
dishonesty against the Company that results in (or might reasonably result in)
material harm to the Company;


 


(3)                                 An
individual’s intentional and material violation of any statutory duty owed to
the Company;


 


(4)                                 An
individual’s unauthorized use or disclosure of the Company’s confidential
information, trade secrets or proprietary information; or


 


(5)                                 An
individual’s gross misconduct.


 


(d)                                  “Change in Control” means the
occurrence in a single transaction or in a series of related transactions of
any one or more of the following events:


 


(1)                                 A sale of all or substantially all of the assets
of the Company;


 


(2)                                 A merger or consolidation in which the Company is
not the surviving entity and in which the holders of the Company’s outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) of the voting
power of the entity surviving such


 


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transaction or, where the surviving entity is
a wholly-owned subsidiary of another entity, the surviving entity’s parent;


 


(3)                                 A reverse merger in which the Company is the
surviving entity but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities of the surviving entity’s parent, cash or
otherwise, and in which the holders of the Company’s outstanding voting stock
immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) of the voting power of
the Company or, where the Company is a wholly-owned subsidiary of another
entity, the Company’s parent;


 


(4)                                 An acquisition by any person, entity or group
within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or subsidiary of the
Company or other entity controlled by the Company) of the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act, or
comparable successor rule) of securities of the Company representing at least
seventy five percent (75%) of the combined voting power entitled to vote in the
election of directors; or


 


(5)                                 The
Company employs any Chief Executive Officer other than Jay D. Kranzler.


 


A transaction effected exclusively for the purpose
of changing the domicile of the Company shall not constitute a Change in
Control and once a Change in Control has occurred, no future events shall
constitute a Change in Control for purposes of the Plan.


 


(e)                                  “Change in Control Covered Termination”
means either a termination of employment by the Company without Cause or a
voluntary resignation of employment for Good Reason; either of which occurring
within one (1) month prior to, or thirteen (13) months following,  the effective date of a Change in Control.


 


(f)                                    “Company” means Cypress Bioscience,
Inc. or, following a Change in Control, the surviving entity resulting from
such transaction or the parent company of such surviving entity.


 


(g)                                 “Covered Termination” means either a
termination of employment by the Company without Cause or a voluntary
resignation of employment for Good Reason that does not occur within one
(1) month prior to, or thirteen (13) months following,  the effective date of a Change in Control.


 


(h)                                 “Director Covered Termination” means
the resignation of a Board member or the termination of a Board member’s
service following the completion of his or her term as a result of his or her
refusal to stand for re-election or the Company’s failure to nominate such
individual for re-election.


 


(i)                                    “Good Reason” means, with respect to an
individual covered by this Plan,  the
occurrence of one or more of the following events without such individual’s
express written consent:


 


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(1)                                 A
material reduction in such individual’s authority, duties or responsibilities
(and not simply a change in title or reporting relationships); provided, however, that Good Reason shall
not be satisfied solely by reason of such individual retaining the same
position held prior to a Change in Control, but in a distinct legal entity or
business unit of a larger entity following such Change in Control;


 


(2)                                 A
reduction by the Company in such individual’s Base Salary;


 


(3)                                 Any
Board action or assignment related to such individual that (i) is contrary to
applicable law, regulatory guidelines, accounting standards or which
constitutes an unethical business practice and (ii) is not cured by the Board
with thirty (30) days of receipt of written notice concerning such action or
assignment; or


 


(4)                                 A
relocation of the Company’s primary office to a location more than thirty (30)
miles from the location as of May 21, 2004.


 


Section 3.                                          ELIGIBILITY
FOR BENEFITS.


 


(a)                                  General
Rules.  Subject to the requirements
set forth in this Section, the Company shall provide severance benefits under
the Plan to the individuals and in the capacities set forth on Appendix A.  The Company is free to add individuals to Appendix A at any time.  In order to be eligible to receive benefits
under the Plan, an individual must (i) experience a Covered Termination, Change
in Control Covered Termination or Director Covered Termination,  (ii) be designated on Appendix A, (iii) have provided continuous service to the Company as a
Board member or an employee for at least one (1) year and (iv) execute a
general waiver and release in substantially the form attached hereto as Exhibit A, Exhibit B or Exhibit C,
as appropriate, and such release must become effective in accordance with its
terms. The Company, in its sole discretion, may modify the forms of the
required release and shall determine the appropriate form of release.


 


Section 4.                                          AMOUNT
OF BENEFIT.


 


Benefits under the Plan,
if any, shall be provided to the individuals described in Section 3 in the
following amounts:


 


(a)                                  Covered Termination Benefits.  Upon an individual’s Covered Termination,
such individual shall receive one of the following severance packages:


 


(1)                                 If
such individual has been employed with the Company for more than one (1)
year, but less than or equal to two (2) years, then such individual shall
receive:


 


Cash
Severance Benefits.  A
lump sum cash payment equal to three (3) months of such individual’s Base
Salary.


 


COBRA Benefits.  If such individual
timely elects to continue coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”), the Company will reimburse all premiums paid by
such individual under COBRA through the earliest of (i) the end of the three
(3) month period following the termination of employment, (ii) the expiration
of


 


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such individual’s continuation coverage under COBRA or (iii) the
date such individual becomes eligible for substantially equivalent health
insurance coverage in connection with new employment.


 


Stock
Option Vesting.  25% of all of such individual’s
unvested outstanding stock options and unvested shares of common stock under
the Company’s equity incentive plans and programs shall become fully vested and
exercisable as of the date of such termination of employment.


 


(2)                                 If
such individual has been employed with the Company for more than two (2)
years, but less than or equal to three (3) years, then such individual will
receive:


 


Cash
Severance Benefits.  A
lump sum cash payment equal to six (6) months of such individual’s Base Salary.


 


COBRA Benefits.  If such individual
timely elects to continue coverage under COBRA, the Company will reimburse all
premiums paid by such individual under COBRA through the earliest of (i) the
end of the six (6) month period following the termination of employment, (ii)
the expiration of such individual’s continuation coverage under COBRA or
(iii) the date such individual becomes eligible for substantially
equivalent health insurance coverage in connection with new employment.


 


Stock
Option Vesting.  50% of all of such individual’s
unvested outstanding stock options and unvested shares of common stock under
the Company’s equity incentive plans and programs shall become fully vested and
exercisable as of the date of such termination of employment.


 


(3)                                 If
such individual has been employed with the Company for more than three (3)
years, but less than or equal to four (4) years, then such individual shall
receive:


 


Cash
Severance Benefits.  A
lump sum cash payment equal to nine (9) months of such individual’s Base
Salary.


 


COBRA Benefits.  If such individual
timely elects to continue coverage under COBRA, the Company will reimburse all
premiums paid by such individual under COBRA through the earliest of (i) the
end of the nine (9) month period following the termination of employment, (ii)
the expiration of such individual’s continuation coverage under COBRA or
(iii) the date such individual becomes eligible for substantially
equivalent health insurance coverage in connection with new employment.


 


Stock
Option Vesting.  75% of all of such individual’s
unvested outstanding stock options and unvested shares of common stock under
the Company’s equity incentive plans and programs shall become fully vested and
exercisable as of the date of such termination of employment.


 


(4)                                 If
such individual has been employed with the Company for more than four (4)
years, then such individual shall receive:


 


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Cash Severance
Benefits.  A lump sum
cash payment equal to twelve (12) months of such individual’s Base Salary.


 


COBRA Benefits.  If such individual
timely elects to continue coverage under COBRA, the Company will reimburse all
premiums paid by such individual under COBRA through the earliest of (i) the
end of the twelve (12) month period following the termination of employment,
(ii) the expiration of such individual’s continuation coverage under COBRA or
(iii) the date such individual becomes eligible for substantially
equivalent health insurance coverage in connection with new employment.


 


Stock
Option Vesting.  100% of such individual’s
unvested outstanding stock options and unvested shares of common stock under
the Company’s equity incentive plans and programs shall become fully vested and
exercisable as of the date of such termination of employment.


 


(b)                                  Change in Control Covered Termination
Benefits.  Upon an
individual’s Change in Control Covered Termination, such individual shall
receive the following severance package:


 


Cash
Severance Benefits.  A
lump sum cash payment equal to twelve (12) months of such individual’s Base
Salary.


 


COBRA Benefits.  If such individual timely elects to continue coverage under
COBRA, the Company will reimburse all premiums paid by such individual under
COBRA through the earliest of (i) the end of the twelve (12) month period
following the termination of employment, (ii) the expiration of such
individual’s continuation coverage under COBRA or (iii) the date such
individual becomes eligible for substantially equivalent health insurance
coverage in connection with new employment.


 


(c)                                  Director Covered Termination Benefits.  Upon an individual’s Director Covered
Termination, such individual shall receive one of the following
severance packages:


 


(1)                                 If
such individual has served on the Board for more than one (1) year, but less
than or equal to two (2) years, then 25% of all of such individual’s
unvested outstanding stock options and unvested shares of common stock under
the Company’s equity incentive plans and programs shall become fully vested and
exercisable as of the date of such termination.


 


(2)                                 If
such individual has served on the Board for more than two (2) years, but
less than or equal to three (3) years, then 50% of all of such individual’s
unvested outstanding stock options and unvested shares of common stock under
the Company’s equity incentive plans and programs shall become fully vested and
exercisable as of the date of such termination.


 


(3)                                 If
such individual has served on the Board for more than three (3) years, but
less than or equal to four (4) years, then 75% of all of such individual’s
unvested outstanding stock options and unvested shares of common stock under
the Company’s equity


 


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incentive plans and programs shall become fully vested and exercisable
as of the date of such termination.


 


(4)                                 If
such individual has served on the Board for more than four (4) years,
then 100% of such individual’s unvested outstanding stock options and unvested
shares of common stock under the Company’s equity incentive plans and programs
shall become fully vested and exercisable as of the date of such termination.


 


All cash severance payment referenced in this
Section 4 shall be subject to all applicable tax withholdings and
deductions required by law and shall be paid within ten (10) business days
following the effective date of the general waiver and release referenced in
Section 3 of the Plan.  An
individual’s right to exercise vested option shares shall be as set forth in
the applicable Company equity incentive plans and programs and applicable stock
option or award agreement(s).  All
terms, conditions and limitations applicable to an individual’s options and/or
shares of common stock shall remain in full force and effect.


 


(d)                                  Certain
Reductions.  Notwithstanding any
other provision of the Plan to the contrary, any benefits payable to an
individual under this Plan shall be reduced (but not below zero) by any
severance benefits payable by the Company or an affiliate of the Company to
such individual under any other policy, plan, program, agreement or
arrangement, including, without limitation, a contract between such individual
and any entity, covering such individual. 
In addition, to the extent that any federal, state or local laws,
including, without limitation the Worker Adjustment Retraining Notification
Act, 29 U.S.C. Section 2101 et seq., or
any similar state statute, require the Company to give advance notice or make a
payment of any kind to an individual because of that individual’s involuntary
termination due to a layoff, reduction in force, plant or facility closing,
sale of business, change of control, or any other similar event or reason, the
benefits payable under this Plan shall either be reduced or eliminated by such
required payments or notice.  The
benefits provided under this Plan are intended to satisfy any and all statutory
obligations that may arise out of an individual’s involuntary termination of
employment for the foregoing reasons, and the Plan Administrator shall so
construe and implement the terms of the Plan.


 


Section 5.                                          LIMITATIONS ON BENEFITS.


 


(a)                                  Mitigation.  Except as otherwise specifically provided
herein, an individual shall not be required to mitigate damages or the amount
of any payment provided under the Plan by seeking other employment or
otherwise, nor shall the amount of any payment provided for under the Plan be
reduced by any compensation earned by an individual as a result of employment
by another employer or any retirement benefits received by such individual
after the date of service or employment termination.


 


(b)                                  Termination
of Benefits.  Benefits under the
Plan shall terminate immediately if the individual, at any time, violates (i)
any proprietary information or confidentiality obligation to the Company, (ii)
any term of this Plan or (iii) any term of the applicable general waiver and
release referenced in Section 3 above.


 


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(c)                                  Non-Duplication
of Benefits.  No individual is
eligible to receive benefits under this Plan more than one time.


 


(d)                                  Indebtedness
of Individuals.  If an individual is
indebted to the Company or an affiliate of the Company on the date of his or
her termination of employment or service, the Company reserves the right to
offset any severance benefits under the Plan by the amount of such
indebtedness.


 


(e)                                  Parachute
Payments.  If any payment or benefit
an individual would receive in connection with a Change in Control from the
Company or otherwise (a “Payment”)
would (i) constitute a “parachute payment” within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) but
for this sentence, be subject to the excise tax imposed by Section 4999 of
the Code (the “Excise
Tax”), then such Payment shall be equal to the Reduced
Amount.  For the avoidance of doubt, a Payment shall not be considered a
parachute payment for purposes of this paragraph if such Payment is approved by
the stockholders of the Company in accordance with the procedures set forth in
Section 280G(b)(5)(A)(ii) and (B) of the Code and the regulations
thereunder, and at the time of such shareholder approval, no stock of the
Company is readily tradable on an established securities market or otherwise
(within the meaning of Section 280G(b)(5)(A)(ii)(I) of the Code).  The “Reduced Amount” shall be either (x) the
largest portion of the Payment that would result in no portion of the Payment
being subject to the Excise Tax or (y) the largest portion of the Payment, up
to and including the total Payment, whichever amount, after taking into account
all applicable federal, state and local employment taxes, income taxes, and the
Excise Tax (all computed at the highest applicable marginal rate), results in
the individual’s receipt, on an after-tax basis, of the greater amount of the
Payment notwithstanding that all or some portion of the Payment may be subject
to the Excise Tax. If a reduction in payments or benefits constituting “parachute
payments” is necessary so that the Payment equals the Reduced Amount, reduction
shall occur in the following order unless the individual elects in writing a
different order (provided, however, that such election shall be subject to
Company approval if made on or after the date on which the event that triggers
the Payment occurs):  reduction of cash
payments; cancellation of accelerated vesting of stock awards; reduction of
employee benefits.  If acceleration of
vesting of stock award compensation is to be reduced, such acceleration of
vesting shall be cancelled in the reverse order of the date of grant of the
individual’s stock awards unless the individual elects in writing a different
order for cancellation.


 


The accounting firm engaged by the Company for general audit purposes
as of the day prior to the effective date of the Change in Control shall
perform the foregoing calculations.  If
the accounting firm so engaged by the Company is serving as accountant or auditor
for the individual, entity or group effecting the Change in Control, the
Company shall appoint a nationally recognized accounting firm to make the
determinations required hereunder.  The
Company shall bear all expenses with respect to the determinations by such
accounting firm required to be made hereunder.


 


The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and the individual within ten (10) calendar days after the date on
which the individual’s right to a Payment is triggered (if requested at that
time by the Company or the individual) or such other


 


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time as requested by the Company or the individual.  If the accounting firm determines that no
Excise Tax is payable with respect to a Payment, either before or after the
application of the Reduced Amount, it shall furnish the Company and the
individual with an opinion reasonably acceptable to the individual that no
Excise Tax will be imposed with respect to such Payment.  Any good faith determinations of the
accounting firm made hereunder shall be final, binding and conclusive upon the
Company and the individual.


 


Section 6.                                          RIGHT
TO INTERPRET PLAN; AMENDMENT AND TERMINATION.


 


(a)                                  Exclusive
Discretion.  The Plan Administrator
shall have the exclusive discretion and authority to establish rules, forms,
and procedures for the administration of the Plan and to construe and interpret
the Plan and to decide any and all questions of fact, interpretation,
definition, computation or administration arising in connection with the
operation of the Plan, including, but not limited to, the eligibility to
participate in the Plan and amount of benefits paid under the Plan.  The rules, interpretations, computations and
other actions of the Plan Administrator shall be binding and conclusive on all
persons.


 


(b)                                  Amendment
or Termination.  The Company
reserves the right to amend or terminate this Plan or the benefits provided
hereunder at any time; provided, however, that no such amendment
or termination shall affect the rights of any individual designated on Appendix A unless such individual consents
to such amendment or termination of the Plan in writing.    Any action amending, terminating or
extending the Plan shall be in writing and executed by the Chief Executive
Officer of the Company.


 


Section 7.                                          CONTINUATION
OF CERTAIN EMPLOYEE BENEFITS.


 


(a)                                  COBRA
Continuation.  Each individual who
is enrolled in a health or dental plan sponsored by the Company or an affiliate
of the Company may be eligible to continue coverage under such health or dental
plan (or to convert to an individual policy), at the time of the individual’s
termination of employment under COBRA. 
The Company will notify the individual of any such right to continue
health coverage at the time of termination. 
No provision of this Plan will affect the continuation coverage rules
under COBRA.  Therefore, the period
during which an individual may elect to continue the Company’s group medical or
dental coverage at his or her own expense under COBRA, the length of time
during which COBRA coverage will be made available to the individual, and all
other rights and obligations of the individual under COBRA  will be applied in the same manner that such
rules would apply in the absence of this Plan. 
At the conclusion of the COBRA premium reimbursements made by the
Company, if any, the individual will be responsible for the entire payment of
premiums required under COBRA for the duration, if any, of the COBRA period.


 


(b)                                  Other
Employee Benefits.  All non-health
benefits (such as life insurance, disability and 401(k) plan coverage)
terminate as of an employee’s termination date (except to the extent that a
conversion privilege may be available thereunder).


 


Section 8.                                          NO
IMPLIED EMPLOYMENT CONTRACT.


 


The Plan shall not be deemed (i) to give any employee or other
person any right to be retained in the employ or service of the Company or
(ii) to interfere with the right of the


 


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Company to discharge any employee or other person at any time and for
any reason, which right is hereby reserved.


 


Section 9.                                          LEGAL
CONSTRUCTION.


 


This Plan is intended to be governed by and shall be construed in
accordance with the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”)
and, to the extent not preempted by ERISA, the laws of the State of California.


 


Section 10.                                   CLAIMS,
INQUIRIES AND APPEALS.


 


(a)                                  Applications
for Benefits and Inquiries.  Any
application for benefits, inquiries about the Plan or inquiries about present
or future rights under the Plan must be submitted to the Plan Administrator in
writing by an applicant (or his or her authorized representative).  The Plan Administrator is:


 


Cypress Bioscience, Inc.


4350 Executive Drive, Suite 325


San Diego, CA 92121


Attn: Chief
Executive Officer


 


(b)                                  Denial
of Claims.  In the event that any
application for benefits is denied in whole or in part, the Plan Administrator
must provide the applicant with written or electronic notice of the denial of
the application, and of the applicant’s right to review the denial.  Any electronic notice will comply with the
regulations of the U.S. Department of Labor. 
The written notice of denial will be set forth in a manner designed to
be understood by the employee and will include the following:


 


(1)                                 the
specific reason or reasons for the denial;


 


(2)                                 references
to the specific Plan provisions upon which the denial is based;


 


(3)                                 a
description of any additional information or material that the Plan
Administrator needs to complete the review and an explanation of why such
information or material is necessary; and


 


(4)                                 an
explanation of the Plan’s review procedures and the time limits applicable to
such procedures, including a statement of the applicant’s right to bring a
civil action under section 502(a) of ERISA following a denial on review of
the claim, as described in Section 10(d) below.


 


This written notice will be given to the applicant within ninety (90)
days after the Plan Administrator receives the application, unless special
circumstances require an extension of time, in which case, the Plan
Administrator has up to an additional ninety (90) days for processing the
application.  If an extension of time
for processing is required, written notice of the extension will be furnished
to the applicant before the end of the initial ninety (90) day period.


 


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This notice of extension will describe the special circumstances
necessitating the additional time and the date by which the Plan Administrator
is to render its decision on the application.


 


(c)                                  Request
for a Review.  Any person (or that
person’s authorized representative) for whom an application for benefits is
denied, in whole or in part, may appeal the denial by submitting a request for
a review to the Plan Administrator within sixty (60) days after the application
is denied.  A request for a review shall
be in writing and shall be addressed to:


 


Cypress Bioscience, Inc.


4350 Executive
Drive, Suite 325


San Diego, CA
92121


Attn: Chief
Financial Officer


 


A request for review must set forth all of the grounds on which it is
based, all facts in support of the request and any other matters that the
applicant feels are pertinent.  The applicant
(or his or her representative) shall have the opportunity to submit (or the
Plan Administrator may require the applicant to submit) written comments,
documents, records, and other information relating to his or her claim.  The applicant (or his or her representative)
shall be provided, upon request and free of charge, reasonable access to, and
copies of, all documents, records and other information relevant to his or her
claim.  The review shall take into account
all comments, documents, records and other information submitted by the
applicant (or his or her representative) relating to the claim, without regard
to whether such information was submitted or considered in the initial benefit
determination.


 


(d)                                  Decision
on Review.  The Plan Administrator
will act on each request for review within sixty (60) days after receipt of the
request, unless special circumstances require an extension of time (not to
exceed an additional sixty (60) days), for processing the request for a review.  If an extension for review is required,
written notice of the extension will be furnished to the applicant within the
initial sixty (60) day period.  This
notice of extension will describe the special circumstances necessitating the
additional time and the date by which the Plan Administrator is to render its
decision on the review.  The Plan
Administrator will give prompt, written or electronic notice of its decision to
the applicant. Any electronic notice will comply with the regulations of the
U.S. Department of Labor.  In the event
that the Plan Administrator confirms the denial of the application for benefits
in whole or in part, the notice will set forth, in a manner calculated to be
understood by the applicant, the following:


 


(1)                                 the
specific reason or reasons for the denial;


 


(2)                                 references
to the specific Plan provisions upon which the denial is based;


 


(3)                                 a
statement that the applicant is entitled to receive, upon request and free of
charge, reasonable access to, and copies of, all documents, records and other
information relevant to his or her claim; and


 


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(4)                                 a
statement of the applicant’s right to bring a civil action under
section 502(a) of ERISA.


 


(e)                                  Rules
and Procedures.  The Plan
Administrator will establish rules and procedures, consistent with the Plan and
with ERISA, as necessary and appropriate in carrying out its responsibilities
in reviewing benefit claims.  The Plan
Administrator may require an applicant who wishes to submit additional
information in connection with an appeal from the denial of benefits to do so
at the applicant’s own expense.


 


(f)                                    Exhaustion
of Remedies.  No legal action for
benefits under the Plan may be brought until the claimant (i) has
submitted a written application for benefits in accordance with the procedures
described by Section 10(a) above, (ii) has been notified by the Plan
Administrator that the application is denied, (iii) has filed a written
request for a review of the application in accordance with the appeal procedure
described in Section 10(c) above, and (iv) has been notified in
writing that the Plan Administrator has denied the appeal.  Notwithstanding the foregoing, if the Plan
Administrator does not respond to a Participant’s claim or appeal within the
relevant time limits specified in this Section 10, then the Participant
may bring legal action for benefits under the Plan pursuant to
Section 502(a) of ERISA.


 


Section 11.                                   BASIS
OF PAYMENTS TO AND FROM PLAN.


 


All benefits under the Plan shall be paid by the Company.  The Plan shall be unfunded, and benefits
hereunder shall be paid only from the general assets of the Company.


 


Section 12.                                   OTHER
PLAN INFORMATION.


 


(a)                                  Employer
and Plan Identification Numbers. 
The Employer Identification Number assigned to the Company (which is the
“Plan Sponsor” as that term is used in ERISA) by the Internal Revenue Service
is 22-2389839.  The Plan Number assigned
to the Plan by the Plan Sponsor pursuant to the instructions of the Internal
Revenue Service is 501.


 


(b)                                  Ending
Date for Plan’s Fiscal Year.  The
date of the end of the fiscal year for the purpose of maintaining the Plan’s
records isDecember 31.


 


(c)                                  Agent
for the Service of Legal Process. 
The agent for the service of legal process with respect to the Plan is
Cypress Bioscience, Inc., Attn: Chief Financial Officer, 4350 Executive Drive,
Suite 325, San Diego, CA 92121.


 


(d)                                  Plan
Sponsor and Administrator.  The “Plan Sponsor” and the
“Plan Administrator”
of the Plan is Cypress Bioscience, Inc., 4350 Executive Drive, Suite 325, San
Diego, CA 92121.  The Plan Sponsor’s and
Plan Administrator’s telephone number is (858) 452-2323.  The Plan Administrator is the named
fiduciary charged with the responsibility for administering the Plan.


 


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Section 13.                                   STATEMENT
OF ERISA RIGHTS.


 


Participants in this Plan (which is a welfare benefit plan sponsored by
the Company) are entitled to certain rights and protections under ERISA.  If you are listed on Appendix A, you are considered a participant
in the Plan and, under ERISA, you are entitled to:


 


Receive
Information about the Plan and Your Benefits


 


(a)                                  Examine,
without charge, at the Plan Administrator’s office and at other specified
locations, such as work sites, all documents governing the Plan and a copy of
the latest annual report (Form 5500 Series) filed by the Plan with the U.S.
Department of Labor and available at the Public Disclosure Room of the Pension
and Welfare Benefit Administration;


 


(b)                                  Obtain,
upon written request to the Plan Administrator, copies of documents governing
the operation of the Plan and copies of the latest annual report (Form 5500
Series) and updated Summary Plan Description. 
The Plan Administrator may make a reasonable charge for the copies; and


 


(c)                                  Receive
a summary of the Plan’s annual financial report.  The Plan Administrator is required by law to furnish each
Participant with a copy of this summary annual report.


 


Prudent
Actions by Plan Fiduciaries


 


In addition to creating rights for Plan participants, ERISA imposes
duties upon the people who are responsible for the operation of the employee
benefit plan.  The people who operate
the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and
in the interest of you and other Plan participants and beneficiaries.


 


Enforce
Your rights


 


No one, including your employer or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining a
Plan benefit or exercising your rights under ERISA.


 


Under ERISA, there are steps you can take to enforce the above
rights.  For instance, if you request a
copy of Plan documents or the latest annual report from the Plan and do not
receive them within 30 days, you may file suit in a Federal court.  In such a case, the court may require the
Plan Administrator to provide the materials and pay you up to $110 a day until
you receive the materials, unless the materials were not sent because of
reasons beyond the control of the Plan Administrator.


 


If you have a claim for benefits that is denied or ignored, in whole or
in part, you may file suit in a state or Federal court.  In addition, if you disagree with the Plan’s
decision or lack thereof concerning the qualified status of a domestic relations
order or a medical child support order, you may file suit in Federal court.


 


12

















 


If it should happen that the Plan fiduciaries misuse the Plan’s money,
or if you are discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor, or you may file suit in a
Federal court.  The court will decide
who should pay court costs and legal fees. 
If you are successful, the court may order the person you have sued to
pay these costs and fees.  If you lose,
the court may order you to pay these costs and fees, for example, if it finds
your claim is frivolous.


 


Assistance
with Your Questions


 


If you have any questions about the Plan, you should contact the Plan
Administrator.  If you have any
questions about this statement or about your rights under ERISA, or if you need
assistance in obtaining documents from the Plan Administrator, you should
contact the nearest office of the Pension and Welfare Benefits Administration,
U.S. Department of Labor, listed in your telephone directory or the Division of
Technical Assistance and Inquiries, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210.  You may also
obtain certain publications about your rights and responsibilities under ERISA
by calling the publications hotline of the Pension and Welfare Benefits
Administration.


 


Section 14.                                   EXECUTION.


 


To record the adoption of the Plan as set forth herein, effective as of  May 21, 2004, Cypress Bioscience, Inc.
has caused its duly authorized officer to execute the same this 21st
day of May, 2004.


 


	
   

  	
  Cypress Bioscience, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Dr. Jay Kranzler

  	
   

  
	
   

  	
  Dr. Jay Kranzler

  
	
   

  	
  Chief Executive Officer

  



 


13

















 


Appendix A


 


List of Participants


 


	
  Name

  	
   

  	
  Position

  	
   

  	
  Effective
  Hire Date

  	
   

  
	
  Mike Gendreau

  	
   

  	
  Officer/employee

  	
   

  	
  October 17, 1994

  	
   

  
	
  Denise Woolard

  	
   

  	
  Officer/employee

  	
   

  	
  February 4, 2004

  	
   

  
	
  Sabrina Johnson

  	
   

  	
  Officer/employee

  	
   

  	
  August 3, 1998

  	
   

  
	
  Srinivas Rao

  	
   

  	
  Officer/employee

  	
   

  	
  January 1, 2001

  	
   

  
	
  Jay Kranzler

  	
   

  	
  Officer/employee/director

  	
   

  	
  December 1, 1995

  	
   

  
	
  Samuel Anderson

  	
   

  	
  Director

  	
   

  	
  March 9, 1998

  	
   

  
	
  Jon McGarity

  	
   

  	
  Director

  	
   

  	
  March 26, 2004

  	
   

  
	
  Jean Pierre Millon

  	
   

  	
  Director

  	
   

  	
  March 25, 2004

  	
   

  
	
  Daniel Petree

  	
   

  	
  Director

  	
   

  	
  June 18, 2004

  	
   

  
	
  Jack Vaughn

  	
   

  	
  Director

  	
   

  	
  March 15, 1992

  	
   

  



 


14

















 


Example


For Employees Age 40 and Over


(Group Termination)


 


EXHIBIT
A


 


RELEASE
AGREEMENT


 


I
understand and agree completely to the terms set forth in the Cypress Bioscience, Inc. Severance
Benefit Plan (the “Plan”).  I understand that this release and waiver
(the “Release”), together with
the Plan, constitutes the complete, final and exclusive embodiment of the
entire agreement between the Company and me with regard to the subject matter
hereof.  I am not relying on any promise
or representation by the Company that is not expressly stated herein.


 


In consideration of benefits I will receive under the Plan, I hereby
generally and completely release the Company and its directors, officers,
employees, shareholders, members, partners, agents, attorneys, predecessors,
successors, parent and subsidiary entities, insurers, affiliates, and assigns
from any and all claims, liabilities and obligations, both known and unknown,
that arise out of or are in any way related to events, acts, conduct, or
omissions occurring prior to my signing this Release.  This Release includes, but is not limited to: (1) all claims
arising out of or in any way related to my employment with the Company or the
termination of that employment; (2) all claims related to my compensation or
benefits from the Company, including, but not limited to, salary, bonuses,
commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, or any other ownership interests in the
Company; (3) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing; (4) all
tort claims, including, but not limited to, claims for fraud, defamation,
emotional distress, and discharge in violation of public policy; and (5) all
federal, state, and local statutory claims, including, but not limited to,
claims for discrimination, harassment, retaliation, attorneys’ fees, or other
claims arising under the federal Civil Rights Act of 1964 (as amended), the
federal Americans with Disabilities Act of 1990, the federal Age Discrimination
in Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment
and Housing Act (as amended).


 


I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under the ADEA.  I
also acknowledge that the consideration given for the waiver and release in the
preceding paragraph hereof is in addition to anything of value to which I was
already entitled.  I further acknowledge
that I have been advised by this writing, as required by the ADEA, that:  (a) my
waiver and release do not apply to any rights or claims that may arise after I
execute this Release; (b) I should consult with
an attorney prior to executing this Release; (c) I
have forty-five (45) days from the date I receive this Release and the
information specified in (f) below to consider this Release (although I
voluntarily may choose to execute this Release earlier);
(d) I have seven (7) days following the execution of this Release
to revoke the Release; and (e) this Release
shall not be effective until the later of (i) the date upon which the
revocation period has expired, which shall be the eighth (8th) day
after I execute this Release, and (ii) the date I return this Release,
fully executed, to the Company; and (f) I have received with this Release
a detailed list of the job titles and ages of all employees who were terminated
in this group termination and the ages of all employees of the Company and its
affiliates in the same job


 

















 


classification or organizational unit who were not terminated.  As required by Title 29 U.S. Code
Section 626(f)(1)(H), the Company is providing you with the Disclosure attached
hereto as Exhibit A-1.  The information
in the disclosure is confidential and should not be shared with anyone except
your professional advisors.


 


I represent that I have not filed any claims against the Company, and
agree that, except as such waiver may be prohibited by statute, I will not file
any claim against the Company or seek any compensation for any claim other than
the payments and benefits referenced herein. 
I agree to indemnify and hold the Company harmless from and against any
and all loss, cost, and expense, including, but not limited to court costs and
attorney’s fees, arising from or in connection with any action which may be
commenced, prosecuted, or threatened by me or for my benefit, upon my
initiative, or with my aid or approval, contrary to the provisions of this
Release.


 


I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: 
“A
general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”  I hereby expressly waive and relinquish all
rights and benefits under that section and any law of any jurisdiction of
similar effect with respect to my release of any claims I may have against the
Company, its affiliates, and the entities and persons specified above.


 


 


	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
					



 


2

















 


Example


For Employees Age 40 and Over


(Group Termination)


 


Exhibit
A-1


 


DISCLOSURE
UNDER TITLE 29 U.S. CODE SECTION 626(f)(1)(H)


 


Confidentiality Provision:                                                The
information contained in this document is private and confidential.  You may not disclose this information to
anyone except your professional advisors.


 


1.                                       The
following departments have been selected for the severance package program:


 


a.


 


b.


 


[ADD MORE IF
NECESSARY]


 


2.                                       In
the [two] departments listed above, employees whose employment will be eliminated
on [date
of termination] are eligible to participate in the severance package
program.


 


3.                                       An
individual age 40 or more years will have up to forty-five (45) days to review
the terms and conditions of the severance package. 


 


EMPLOYEES
ELIGIBLE FOR THE SEVERANCE PACKAGE PROGRAM


 


	
  JOB TITLE

  	
   

  	
  AGE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  



 

















 


EMPLOYEES
NOT ELIGIBLE FOR THE SEVERANCE PACKAGE PROGRAM


 


	
  JOB TITLE

  	
   

  	
  AGE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  



 


2

















 


Example


For Employees Under Age 40


(Group Termination)


 


EXHIBIT
B


 


RELEASE
AGREEMENT


 


I
understand and agree completely to the terms set forth in the Cypress Bioscience, Inc. Severance
Benefit Plan (the “Plan”). I
understand that this release and waiver (the “Release”),
together with the Plan, constitutes the complete, final and exclusive
embodiment of the entire agreement between the Company and me with regard to
the subject matter hereof.  I am not
relying on any promise or representation by the Company that is not expressly
stated herein.


 


In consideration of benefits I will receive under the Plan, I hereby
generally and completely release the Company and its directors, officers,
employees, shareholders, members, partners, agents, attorneys, predecessors,
successors, parent and subsidiary entities, insurers, affiliates, and assigns
from any and all claims, liabilities and obligations, both known and unknown,
that arise out of or are in any way related to events, acts, conduct, or
omissions occurring prior to my signing this Release.  This Release includes, but is not limited to: (1) all claims
arising out of or in any way related to my employment with the Company or the
termination of that employment; (2) all claims related to my compensation or
benefits from the Company, including, but not limited to, salary, bonuses,
commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, or any other ownership interests in the
Company; (3) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing; (4) all
tort claims, including, but not limited to, claims for fraud, defamation,
emotional distress, and discharge in violation of public policy; and (5) all
federal, state, and local statutory claims, including, but not limited to,
claims for discrimination, harassment, retaliation, attorneys’ fees, or other
claims arising under the federal Civil Rights Act of 1964 (as amended), the
federal Americans with Disabilities Act of 1990 and the California Fair
Employment and Housing Act (as amended).


 


I represent that I have not filed any claims against the Company, and
agree that, except as such waiver may be prohibited by statute, I will not file
any claim against the Company or seek any compensation for any claim other than
the payments and benefits referenced herein. 
I agree to indemnify and hold the Company harmless from and against any
and all loss, cost, and expense, including, but not limited to court costs and
attorney’s fees, arising from or in connection with any action which may be
commenced, prosecuted, or threatened by me or for my benefit, upon my
initiative, or with my aid or approval, contrary to the provisions of this
Release.


 


I acknowledge that to become effective, I must sign and return this
Release to the Company so that it is received not later than ten (10) days
following the date of my employment termination.  I acknowledge that I have read and understand Section 1542
of the California Civil Code which reads as follows:  “A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.”  I hereby expressly
waive and relinquish all rights and benefits under that section and any
law of


 

















 


any jurisdiction of similar effect with respect to my release of any
claims I may have against the Company, its affiliates, and the entities and
persons specified above.


 


	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
					



 


2

















 


Example


For Employees Age 40 and Over


(Individual Termination)


 


EXHIBIT
C


 


RELEASE
AGREEMENT


 


I
understand and agree completely to the terms set forth in the Cypress Bioscience, Inc. Severance
Benefit Plan (the “Plan”). I
understand that this release and waiver (the “Release”),
together with the Plan, constitutes the complete, final and exclusive
embodiment of the entire agreement between the Company and me with regard to
the subject matter hereof.  I am not
relying on any promise or representation by the Company that is not expressly
stated herein.


 


In consideration of benefits I will receive under the Plan, I hereby
generally and completely release the Company and its directors, officers,
employees, shareholders, members, partners, agents, attorneys, predecessors,
successors, parent and subsidiary entities, insurers, affiliates, and assigns
from any and all claims, liabilities and obligations, both known and unknown,
that arise out of or are in any way related to events, acts, conduct, or
omissions occurring prior to my signing this Release.  This Release includes, but is not limited to: (1) all claims
arising out of or in any way related to my employment with the Company or the
termination of that employment; (2) all claims related to my compensation or
benefits from the Company, including, but not limited to, salary, bonuses,
commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, or any other ownership interests in the
Company; (3) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing; (4) all tort
claims, including, but not limited to, claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (5) all federal,
state, and local statutory claims, including, but not limited to, claims for
discrimination, harassment, retaliation, attorneys’ fees, or other claims
arising under the federal Civil Rights Act of 1964 (as amended), the federal
Americans with Disabilities Act of 1990, the federal Age Discrimination in
Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment
and Housing Act (as amended).


 


I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under the ADEA.  I
also acknowledge that the consideration given under the Release for the waiver
and release in the preceding paragraph hereof is in addition to anything of
value to which I was already entitled. 
I further acknowledge that I have been advised by this writing, as
required by the ADEA, that:  (A) my waiver and release do not apply to any rights or claims
that may arise on or after the date I execute this Release;
(B) I should consult with an attorney prior to executing this Release; (C) I have twenty-one (21) days to consider this Release
(although I may choose to voluntarily execute this Release earlier); (D) I have seven (7) days following my execution of this
Release to revoke the Release; and (E) this Release
shall not be effective until the date upon which the revocation period has
expired, which shall be the eighth (8th) day after I execute this Release.


 


I represent that I have not filed any claims against the Company, and
agree that, except as such waiver may be prohibited by statute, I will not file
any claim against the Company or seek any compensation for any claim other than
the payments and benefits referenced herein. 
I agree to indemnify and hold the Company harmless from and against any
and all loss, cost, and expense, including, but not limited to court costs and
attorney’s fees, arising from or in


 

















 


connection with any action which may be commenced, prosecuted, or
threatened by me or for my benefit, upon my initiative, or with my aid or
approval, contrary to the provisions of this Release.


 


I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: 
“A
general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”  I hereby expressly waive and relinquish all
rights and benefits under that section and any law of any jurisdiction of
similar effect with respect to my release of any claims I may have against the
Company, its affiliates, and the entities and persons specified above.


 


 


	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
					



 


2